Federal National Mortgage Association
) or Fannie Mae fell 1.5% after it reported second-quarter 2014 net
income of $3.7 billion, down 63.7% year over year. The huge
earnings decline led to negative market sentiment despite the
government backed mortgage financier delivering 10th consecutive
Results were adversely impacted by lower net revenue as well as
credit related income. Moreover, elevated expenses further dragged
the results downward. Nevertheless, improvement in credit quality
and strong liquidity position continued to be the positives during
Behind the Headlines
Fannie Mae's net revenue came in at $5.3 billion, down 14.1% year
over year. The decline was driven by a fall in fee and other income
as well as net interest income.
Total credit-related income decreased 67.6% year over year to $1.9
billion. The fall was due to lower benefit for credit losses as
well as foreclosed property income. However, net investment gains
climbed 74.5% from the year-ago quarter to $506 million.
Expenses totaled $1.1 billion, catapulting 83.9% from the
prior-year quarter. The significant rise was driven by an increase
in all the components of expenses.
Since Jan 2009 through Jun 2014, Fannie Mae provided more than $4.2
trillion in liquidity to the mortgage market through its purchases
and guarantees of loans. This enabled borrowers to complete the
refinancing of 12.8 million mortgages and 4.1 million home
purchases, while the bank provided financing for 2.3 million units
of multifamily housing.
Further, Fannie Mae completed more than 32,000 loan modifications
in the reported quarter. This brought the total number of loan
modifications completed by the company to more than 1.1 million
since Jan 2009.
As of Jun 30, 2014, Fannie Mae's total loss reserves declined 20.8%
year over year to $42.1 billion. Further, as of Jun 30, 2014,
allowance for loan losses totaled $39.1 billion, down 10.9% as of
Dec 31, 2013.
As of Jun 30, 2014, cash and cash equivalents summed $20.8 billion
compared with $19.2 billion as of Dec 31, 2013. Further, total
mortgage loans amounted to $3.00 trillion, down marginally from
$3.03 trillion as of Dec 31, 2013.
Additionally, Fannie Mae will pay taxpayers $3.7 billion as
dividends in Sep 2014. Following this payment, the company will
have paid a total of approximately $130.5 billion as dividends to
Treasury. As of Jun 30, 2014, senior preferred stock outstanding
and held by Treasury was $117.6 billion.
Though Fannie Mae suffered losses during the crisis of 2008-2009
and had to be bailed out by the government, it managed to turn
itself into a profitable organization supported by stable recovery
in the housing market.
However, the mortgage lender's profitability is bearing the brunt
of subsiding refinancing demand propelled by higher interest rates
since 2013. Going forward, the pressure on top line will mount
given the backtracking housing recovery.
Fannie Mae currently carries a Zacks Rank #3 (Hold). Some
better-ranked companies in the same sector include Home Loan
Servicing Solutions, Ltd. (
), Federal Home Loan Mortgage Corporation (
) and PennyMac Financial Services, Inc. (
). All these stocks hold a Zacks Rank #2 (Buy).
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